‘He will be sacked too:’ New Central Bank governor, same old policies

K. Murat Yıldız / Duvar English

Turkish Central Bank (CBRT) Governor Şahap Kavcıoğlu announced in his speech to the 89th Ordinary General Assembly and later in a teleconference meeting with investors that Turkey’s strict monetary policy will be preserved and that additional tightening will be made if necessary.

Experts interpreted these signals as an interest rate cut being unlikely at the Monetary Policy Committee (PPK) meeting on April 15.

Governor Kavcıoğlu announced the following commitments to domestic and foreign investors in his speech at the 89th Ordinary General Assembly of the Central Bank:

- To keep the policy rate above inflation
- Policy decisions will be data driven
- The one-week repo rate will continue to be the main tool of our monetary policy
- Commitment to the single digit inflation target of 5 percent by the year of 2023
- Increase the Turkish lira’s value and ensure its positive market reputation

Per the governor's statements, experts believe the bank will continue to resist President Recep Tayyip Erdoğan's pressure to lower interest rates, and that Kavcıoğlu will not make an interest rate cut decision at the PPK meeting on April 15, as the announcement reaffirms the bank's commitment to pay interest rates above inflation while independent sources forecast a continued rise in inflation.

'Why was Ağbal fired then?'

The statement from the newly appointed governor saying that he will pursue his predecessor’s policies raises the question of why Ağbal was fired.

“It appears that the government's intention to use the Central Bank's capital, accounts, and monetary assets as much as possible prompted this change of governors,” main opposition Republican People’s Party (CHP) deputy chair Erdoğan Toprak told Duvar English.

“The government might aim to provide long-term resources to small and medium-sized enterprises (SME’s), investors, as well as state and some private banks at lower interest rates via the Central Bank’s resources. During the tenure of Minister Albayrak and Governor Uysal, we saw this pattern. However, it did not last more than 2-3 months," Toprak added.

Regarding the past monetary policies, Toprak said, “During that time, the ample credit available, as well as some of the low-interest loans, went to foreign exchange and gold purchases; the loans extended a boost to the economy, while they also fed and induced inflation, forcing them to return to tight monetary policies.”

The deputy pointed at the Central Bank's already tarnished image and cautioned that if applied, "these previously-attempted backdoor policies via interest rates and credit expansion will cause complete economic collapse."

'Cenbank is no longer autonomous'

“The CBRT is no longer autonomous. In a 2 – 2.5 year period, its governor has been changed four times. The CBRT has turned into an instrument that finances state banks and state banks are political tools of the ruling party,” economy columnist Uğur Civelek told Duvar English, while also noting that “the traditional financial system has changed drastically in the last 5 years and there is no longer any autonomous institution; it has devolved into a one-man show.”

Regarding the question of why Murat Uysal, Ağbal's predecessor, was removed from his position, Civelek said, “He was a 'yes man' who obeyed every order. For the first time in Turkey’s history, a party member was chosen to lead the CBRT. Mr. Ağbal was a prominent figure in Erdoğan’s ruling party. He had no choice but to hike interest rates in reaction to global market realities, and he was fired for that,”

“The new governor says he will follow Ağbal’s policy. He is attempting to get the support of markets. Difficult times await this new governor. Emerging markets will face challenges in the second quarter of this year. In order to protect the exchange rates, he will be forced to hike interest rates. Will he also be fired after he does so?” Civelek asked.

'Erdoğan is responsible'

President Erdoğan said in a public appearance during his party's 2019 local election campaign, "I am in charge of Turkey's economy!"

Regarding the culpability of the president, Civelek said, “President Erdoğan is the sole individual responsible for the country's financial problems. In order to save himself, he plays the blame game and throws people under the bus. Uysal was sacked for this reason after the lira depreciated, and Ağbal was fired after interest rates were increased. His son-in-law was also taken out of the picture for this reason.”

‘One will come and the other will go’

With so many transfers of power, the question of whether this new governor will also be fired has been raised. Civelek thinks yes.

“There is no doubt that in the case of a significant exchange rate increase or a new interest rate hike, this new governor, even the Treasury and Finance Minister, will be sacked too. They would go to any length to protect Erdoğan's reputation ahead of the upcoming and possibly early elections. They'll make others pay the bill of Erdoğan’s failures.”

“It is the duty of every CBRT Governor and Treasury and Finance Minister in the recent past, present, and future to protect Erdoğan's image and take the blame for him,” Civelek concluded, adding, "One will come and the other will go."